As Chinese stocks rally, Tencent is flashing a major buy signal

Even with the U.S.-China trade war still raging, Chinese stocks are on fire.

Tencent had plummeted 47 percent from its January peak last year to its trough last October. Since that bottom, it has rallied 35 percent to four-month highs.

A key technical indicator, its moving average convergence divergence (MACD), is also suggesting a bullish lean to the stock, says Johnson. A stock’s MACD demonstrates the correlation between a 26-period exponential moving average and a 12-period exponential moving average. When measured against a baseline, the indicator can suggest bullish or bearish momentum.

“When we’ve seen a MACD buy signal happen like we have right here, we’ve seen that 30 days later that the stock is typically up almost 13 percent,” Johnson explained. “This would be one we’d be buying.”

A 13 percent rally would take Tencent’s shares above $49, a level last seen in July 2018.

The rally in the rest of the Chinese stocks should also continue as investors pick up bargains, says Gina Sanchez, CEO of Chantico Global.

“The reality is that the Chinese stocks have been extremely cheap, and even with this rally they’re still actually fairly cheap,” Sanchez said on “Trading Nation” on Friday.

The FXI ETF trades at below 8 times forward earnings. By comparison, the S&P 500 has a 15 times multiple.

“You look at a lot of these big names – Baidu, Tencent, Alibaba – they still can make tremendous amounts of growth just within the Chinese economy,” Sanchez added. It means the “trade outlook has an impact, but some of these stocks they have been beaten down for no good reason across emerging markets.”

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